Is Citi safer than JPMorgan, as Fed stress tests show?

By David Henry / Reuters, NEW YORK

The Fed did not publish stress scores for the banks under Basel 3 because the regulators have not finalized those rules yet.

Cannon said there was one reason to think of Citigroup as being safer: Its capital markets business is smaller than JPMorgan’s. Regulators regard capital markets operations as riskier than consumer banking businesses.

The Fed’s scoring is also at odds with results some of the banks calculated for themselves under the same scenarios, which shows there is room for subjectivity in the testing.

JPMorgan, for example, found that its ratio would fall to 7.6 percent, significantly better than the 6.3 percent reported by the Fed. Goldman Sachs Group Inc determined its low during the hypothetical stress period would be 8.6 percent, compared with the 5.8 percent reported by the Fed, with some of the difference related to its extensive capital markets activities.

Wells Fargo said in a statement that it could not fully explain the difference because the Fed does not disclose all of the models it uses to score the banks.

“It is primarily model-driven assumptions that will drive the differences,” said Fernando De La Mora, who leads PricewaterhouseCoopers’ banking and capital markets risk.

Last year, differences between scores by the banks and by the regulator were not disclosed, but people in the industry knew of significant disagreements over expected losses in some portfolios, said De La Mora.

This year, the Fed told the banks that it “will focus on the robustness” of each bank’s testing.

For Citigroup, the Fed’s ratio this year of 8.3 percent was nearly as high as the 8.4 percent the bank tallied for itself.